Growing Scrutiny, Layoffs Mark Next Leg of Post-FTX Crypto Contagion

crypto downturn

It’s been a choppy start to the new year for the crypto industry.

This, as millions of customers are out of their entrusted money and thousands are out of a job as a waves of alleged fraud, market contractions, regulatory scrutiny and company downsizing continue rolling in.

The one bit of good news — albeit conflicting — was found in bitcoin, as the largest cryptocurrency by market value surged above $19,000, extending a 15% New Year’s rally that has left it at a two-month high.

Even so, the nominal cryptocurrency is still down 55% in the past year and has shed more than $2 trillion in market value since its 2021 heights.

Trimming the Fat

As reported by PYMNTS, digital asset exchange — the Singapore-based naming sponsor of L.A.’s Arena, home to the NBA’s Lakers and Clippers as well as the NHL’s Kings — is cutting its global workforce by 20%, citing “ongoing economic headwinds and unforeseeable industry events.”

The layoffs at represent the exchange’s second round of employee downsizing in barely six months, as the company reduced its workforce this past July by 5%, or 260 staff members. This latest round of cuts will affect an estimated 1,000 employees.

The news comes at the end of a brutal week that saw multiple rounds of layoffs for the crypto industry more broadly.

Rival U.S.-based exchange Coinbase also announced a 20% cut to its own workforce this week, representing around 960 employees, as relayed by PYMNTS. The staff cuts mark the third time Coinbase has reduced its headcount since June.

In its most recent 8-K filing, Coinbase indicated it expects to take a nearly $500 million adjusted EBITDA hit for the full fiscal year.

“As we examined our 2023 scenarios, it became clear that we would need to reduce expenses to increase our chances of doing well in every scenario,” Coinbase CEO Brian Armstrong wrote in a blog post announcing the job cuts. The company’s recent $100 million fine may have separately added to payroll pressures.

Trading platforms in particular are suffering, with reportedly cutting 28% of its workforce as well — impacting 110 workers, and following on the heels of the 150 workers the company laid off last June.

Embattled Genesis Global Trading has also laid off 30% of its staff across departments in a major headcount reduction as it mulls filing for bankruptcy in the face of ongoing struggles with the Gemini exchange.

Binance, the largest crypto exchange by trading volume, is bucking the industry downsizing trend, however, with the company reportedly planning to grow its headcount by 15% to 30%.

This, while the company’s founder tweets, “More FUD [fear, uncertainty and doubt] incoming, will ignore!” and the exchange’s native stablecoin is revealed to have been missing collateral of as much as $1 billion multiple times over the past three years.

The company is also reported to be “bleeding assets,” with PYMNTS reporting that Binance has seen $12 billion in customer withdrawals over just the past two months.

Poking the Belly

As PYMNTS wrote last month (Dec. 27), the outlook for cryptocurrency in 2023 is much shakier than it was in 2022.

Investor risk appetite, both retail and institutional, is cooling as is broader public sentiment. As covered by Reuters (Jan. 12), illicit use of cryptocurrencies hit a record $20.1 billion in 2022.

Fittingly, the only thing heating up appears to be regulatory scrutiny.

The Securities and Exchange Commission (SEC) has this week (Jan. 12) charged Genesis Global Capital and Gemini Trust Company with offering unregistered securities, an action which Gemini Co-founder and CEO Tyler Winklevoss called “counterproductive” and “a manufactured parking ticket” in a series of tweets.

Separately, The Department of Justice (DOJ) is reportedly investigating the founders of Solana stablecoin exchange Saber Labs alleging the company’s leaders used a web of 11 pseudonyms to create a network of interconnected financial products that double-and triple-counted cryptocurrency deposits by passing tokens between themselves.

This week also saw reports (Jan. 11) that the SEC is probing the efficacy of the diligence policies and risk controls blue-chip financial firms and other investors had in place before giving capital to FTX.

In a striking sign of the times, one-time paper billionaire and FTX founder, Sam Bankman-Fried, who just last winter was hobnobbing with Tom Brady and winning industry awards for his company’s Superbowl advertisements, is now penning blog posts defending himself from criminal fraud allegations while under house arrest at his parents’ home.